Canadian Dollar Update May 29, 2019 – Canadian dollar probing key support
USD/CAD Open: 1.3507-1.3508 Overnight Range: 1.3482-1.3522
The Canadian dollar was rangebound in overnight currency exchange markets. Oil is at $57.87 and gold is at $1,283. US markets are lower. The Bank of Canada is expected to make a rate decision today.
The short-term USD/CAD technicals are bullish. For today, USD resistance is at 1.3527. Support is at 1.3455.
The Canadian dollar came under renewed pressure overnight. Another drift into risk aversion style trades, sparked by threatening comments in Chinese media, triggered fresh US dollar demand. The editor of a Chinese newspaper suggested that China could halt exports of rare minerals to America. The rare minerals are a group of seventeen elements used in the production of electronics, renewable energy, and glass. They have critical defense uses including night vision goggles, precision-guided weapons. and communications equipment. Enough so, that the US Geological survey designated them as critical to the economy and National defense, as per a BBC article.
Currently, China is the source of 80% of all rare earth mineral imports into the United States. If the Chinese government disrupted this export, it would seriously escalate trade tensions. There wasn’t any actionable, top tier data available overnight, which may have exaggerated the impact of the rare minerals story on markets. Global equity indices took their cue from Wall Street. Asia closed with losses, led by a 1.2% drop in the Nikkei 225 while European bourses are in the red. Wall Street is poised to open in negative territory as well.
Safe haven demand for Japanese yen fueled sales of CADJPY, which helped to undermine the Canadian dollar. USDJPY was under additional pressure as US Treasury yields continued to move lower.
European traders bought US dollars across the board when they started their day. EURUSD dropped to 1.1150 from 1.1171 and is trading in Toronto at the bottom of that range. Weaker than forecast German employment data combined with Italian budget concerns and the ongoing Brexit woes supported EURUSD sellers. Safe haven demand for Japanese yen and Swiss francs led to selling of EUR against those currencies.
Sterling continued its month-long decline, falling from 1.2664 to 1.2628 in early Toronto trading. UK political issues are undermining the currency pair with concerns about Prime Minister Theresa May’s replacement and its impact on Brexit.
Oil prices collapsed overnight. West Texas Intermediate plunged from $59.03/barrel to $58.00/b following the China rare minerals threat. The risk of slower global growth because of an extended US and China trade war outweighed the prospect of existing production cuts continuing until the end of the year.
The Canadian dollar bounced off support in the USDCAD 1.3520 area in early Toronto trading. The Bank of Canada is widely expected to leave Canadian interest rates unchanged at 1.75% today. Analysts do not expect much change in the BoC policy statement, mainly because it would be too soon after changing to a “neutral” stance at the previous meeting.
There isn’t any US data of note today suggesting FX moves will track Wall Street price action.
Today’s Suggested Range USD/CAD: 1.3460 – 1.3560
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